In the example, the standard deviation of the portfolio's return is lower than that of...
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Finance
In the example, the standard deviation of the portfolio's return is lower than that of these two funds B and S. What is the intuition behind this? Is it always the case? Examine how the returns on these two funds behave. Do they move together or in opposite directions?
| portfolio proportions | |||||||||||||
| Bond | Stock | Bond | Stock | SD | Mean | ||||||||
| mean | 8.80% | 12.50% | 0 | 1 | 17.50% | 12.50% | |||||||
| VAR | 0.007536 | 0.030625 | 0.1 | 0.9 | 15.39% | 12.13% | |||||||
| SD | 8.68% | 17.50% | 0.2 | 0.8 | 13.34% | 11.76% | |||||||
| COV | -0.0066 | 0.3 | 0.7 | 11.36% | 11.39% | ||||||||
| Cor | -0.4345 | 0.4 | 0.6 | 9.52% | 11.02% | ||||||||
| 0.5 | 0.5 | 7.90% | 10.65% | ||||||||||
| 0.6 | 0.4 | 6.67% | 10.28% | ||||||||||
| 0.7 | 0.3 | 6.06% | 9.91% | ||||||||||
| 0.8 | 0.2 | 6.27% | 9.54% | ||||||||||
| 0.9 | 0.1 | 7.23% | 9.17% | ||||||||||
| 1 | 0 | 8.68% | 8.80% | ||||||||||
| | |||||||||||||
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